You have decided it is time to sell your veterinary practice—now what? How do you know what business aspects will be attractive to potential buyers, and how your practice stacks up? Here are the most common characteristics a buyer reviews when considering a practice purchase.
Practice profitability is the most important aspect a buyer considers. If your profitability is not as high as you would like, there may be opportunities to improve it so potential buyers take a closer look. For example, if the cost of goods sold (COGS) is higher than it should be, there are ways to effectively manage inventory, lower COGS, and improve your net income (i.e., profitability). If veterinary average daily transactions (ADTs) are lower than you would like, and there is opportunity to improve medical care, this can also improve your net income.
Some practices with a respectable net income may have reinvested a lot of money back into the practice without seeing a good return on investment (ROI). For example, a practice that spends a substantial amount of money on a surgical laser, but does not charge appropriately or use the laser often, will fail to realize a return on the investment. Potential buyers also want to review your cash flow to ensure any debt can be serviced with money left over.
#2: Number of veterinarians currently working at the practice
Most buyers are more comfortable purchasing multi-veterinarian practices because their investment is protected if one doctor leaves. Practices with only one or two veterinarians are a much higher risk, as are practices that are supported by part-time or relief veterinarians.
#3: Number of support staff per veterinarian
This is an often-overlooked aspect; however, a practice that is not staffed properly cannot grow properly. An ideal ratio of three to four support staff per full-time equivalent veterinarian allows the veterinarian to be fully supported, and see as many patients as possible.
#4: Trained support staff
While the number of support staff is important, the number of professionally trained staff is more critical. The most attractive hospitals have staff members who increase efficiency, which allows veterinarians to see more patients and deliver services to patients and clients in a timely manner. When veterinarians don’t have to take time to train staff, perform support staff duties, and educate clients, they can provide care to more patients—a win-win for patients, clients, and the hospital’s bottom line.
#5: Practice culture
A buyer will be leary if your practice has a history of unexplained staff—or veterinarian—turnover, which can indicate the work environment is not ideal. The transition to new ownership is often challenging, and a poor practice culture can make the change more difficult.
#6: Equipment age
If your medical equipment is old, poorly maintained, or outdated, the new owner will have to pay for updates. Potential buyers will take that into consideration, and the cost involved may lower the purchase price.
#7: Owner transition
Most sellers realize they may need to stay on for one to three years after their practice’s sale. Some owners prefer to stay on longer if they are not ready to retire but no longer want to be an owner. However, a seller who stays on sometimes causes problems for the buyer once the practice is sold. They may make it difficult for the new owner to make practice changes. Buyers look for situations where the transition will be as seamless as possible for all parties involved.
In summary, things you can do to make your practice more attractive to a buyer include:
- Work on raising your net income as high as possible at least three to five years prior to selling. This will allow you to realize as much as you can for your practice, and will attract multiple buyers. Keep in mind that valuators will adjust for ‘normal operating expenses’ so avoid attempting to manipulate net income (e.g., skimping on owner compensation, not paying yourself rent if you own the real estate, not paying fair market compensation for management, etc.).
- Ensure you have training processes and procedures in place so your support staff is able to fully support your veterinarians, allowing your veterinarians to see more patients.
- Invest in staff education and development, and empower your staff to grow. This will go a long way toward establishing staff longevity and a positive practice culture.
- If your practice currently supports only one or two veterinarians, do all you can to grow your practice so you can justify hiring more veterinarians.
- Strive to provide the proper staff-to-veterinarian ratio that will allow your practice to grow.
- Reinvest in the practice wisely. Add services or equipment that will allow you to realize a profit and pay off equipment in a timely manner.
Inspire Veterinary Partners offers multiple options for practice owners interested in selling their practice. Contact us to discuss the best way for you to transition your practice.